IRS rejects reward claim by tax whistleblower

A woman walks out of an Internal Revenue Service office in New York April 18, 2011.

Reuters/Lucas Jackson

(Reuters) - The Internal Revenue Service has rejected a reward claim made by a whistleblower, former banker Joseph Insinga, who had sued the agency in a closely watched case.

In a letter dated April 15, the IRS told Insinga that he was not entitled to a reward. A copy of the letter was provided to Reuters by his attorney Andrew Carr.

The information Insinga gave to the IRS in May 2007 about several companies, which he alleged dodged taxes, did not result in collection of any additional taxes, the IRS said.

Insinga will appeal the rejection, Carr told Reuters by email.

Insinga had sued the IRS last year, trying to force it to announce a determination on his claims after years of being kept in the dark about the status of his case.

Other whistleblowers and lawyers had hoped the Insinga case would bring more clarity to how the IRS handles whistleblower claims, said Bryan Skarlatos, a tax lawyer at the firm of Kostelanetz & Fink who represents taxpayers and whistleblowers.

A 2006 overhaul of the IRS whistleblower program gave informants involved in it the right to appeal a rejection to the Tax Court. Insinga has 30 days to file. So far, no such appeal has been successful.

Dean Zerbe, a lawyer who represents whistleblowers, said Insinga's case has been helpful. "The court showed that they are not going to take the IRS's word as gospel," Zerbe said.

The IRS has been criticized for moving too slowly to embrace the whistleblower program. At an April 10 hearing about new rules for the program, IRS officials were told by lawyers that informants worry their tips are not welcome.

At a Senate hearing on Tuesday, Acting IRS Commissioner Steven Miller said whistleblowers are "vital" to tax collecting where "there are blindspots for us ... in the offshore area."